Digital customers of financial products spoilt for discounts, offers

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Slowly but surely financial companies across India are starting to pay their online customers a ‘digital dividend.’ This comes in the form of higher interest rates, returns, lower fees or a combination of all three. The reason for this ‘digital dividend’ is pretty simple. The cost of delivering online financial services is a fraction of delivering physical ones. Companies can afford to pass on some of this saving to customers.

Credit or debit cards

The best example of a digital dividend is payment through credit or debit cards rather than cheques/cash. These kinds of payments usually accumulate points which you can later use to buy various gadgets or rewards offered by the issuer. These rewards accrue to financial payments as well. For example, paying your insurance premium through your credit card will get you reward points whereas paying through cheques at bank branches will not (cash is not an option above Rs 50,000). Do note that you cannot pay mutual fund SIPs through credit cards. However, you can pay these/make lump sum investments through debit cards.

Fixed Deposits

Mahindra Finance a Non-Banking Finance Company (NBFC), has kicked off the digital dividend race by offering a 0.25% higher rate to customers who open online FDs with it. A deposit with an NBFC is a company fixed deposit. This carries a higher risk and a lower liquidity than a bank FD. However several banks are likely to follow suit. Most of them already offer the option of online FDs.

Mutual Funds

Investing in mutual funds online does not attract any special discounts if you buy ‘regular plans.’ However, buying ‘direct’ plans (online or offline) can save you anywhere between 0.5%-1% of your return every year. Several companies offer direct plans online, most notably, Mutual Fund Utilities, a company owned by several fund houses. However do note that regular plans usually come with distributor advice on fund selection, tracking and redemption. Going for direct plans can cause you to lose out on this, unless you pay a separate fee to a Registered Investment Advisor (RIA).

Stock Broking

A new breed of online ‘discount’ stockbrokers offer much lower brokerage rates than traditional brokers. They dispense with a branch office network, telecallers and research reports in favour of just rock-bottom costs. A common example would be the low or fixed brokerage model offered by Zerodha/RKSV compared to the percentage cut taken by traditional brokers such as ICICI Direct, Axis and Kotak. Once again, do note that discount brokerages will not typically offer you equity research or financial advice.

Insurance

LIC commonly gives discounts on policies bought online. Its private sectors rivals have also launched low cost online ULIPs and term insurance. In a recent interview, Tarun Chugh of Bajaj Allianz Life Insurance noted that the charges in online-oriented ULIPs are significantly lower because they eliminate agent commissions. We observed this first hand in our review of two such products – HDFC Life’s Click2Invest and Bajaj Allianz’s Goal Assure.

Pensions

Opening your NPS account online through enps.nsdl.com or enps.karvy.com will save you from the charges that come with an associated PoP or Point of Presence (typically your bank). These charges are 0.25% of your contributions if they are made through the PoP branch. For instance, if you contribute Rs 2 lakh per annum to NPS, a Rs 500 charge will flow to the PoP.

As an alternative, you can open an account through a PoP and subsequently contribute online through eNPS. However, this will still cost you a bit more than not going through a PoP at all. In this second case, the PoP will get 0.1% of your contributions. Thus in case of a Rs 2 lakh contribution, Rs 200 will go to your PoP.